No doubt, insurance rates are climbing, although at a slower rate than in recent years. I know firsthand that policyholders are unhappy about rising premiums, especially in the homeowners market. But recent premium increases don't mean that the Department of Insurance is not doing its job. Rates are up because insurers' claim costs are up, and the Department of Insurance has granted requested rate increases that reflect this hard reality. It's the same reality we see in the increasing cost to build a home, buy a car, or seek medical treatment. If the department followed the advice of its critics and artificially set prices below claim costs, forcing insurers out of the state, then it could legitimately be accused of not protecting South Carolina policyholders.

Rising premiums reflect losses in the homeowners' insurance line over the past four years (2000 through 2003) that are estimated at $17 billion, approaching the level of insured property losses from the September 11 terrorist attack. Losses are up due to several causes: more frequent and severe natural catastrophes -- in Charleston we know about this firsthand; costs (labor and materials) to rebuild homes after a disaster have soared as more consumers buy expensive houses in coastal areas; record low interest rates have meant more consumers can afford more house, and that extra square footage, which may also be filled with expensive electronics equipment, or may be used as a home-based business, costs more to insure. The rising costs of litigation and fraud also have to be factored in. Insurers are constantly working to keep these costs under control. We can't do anything about the weather, but we can keep educating consumers about minimizing weather-related and other types of risks around the home, and we support the state's aggressive fight against insurance fraud and the statewide campaign for litigation reform.

But the biggest positive impact on South Carolina's insurance consumers would come from moving our state toward a more market-driven system of insurance regulation. As you know, insurance remains one of the most heavily regulated sectors of the U.S. economy. Given its critical economic and societal role, the fact that it is closely regulated is to be expected. The problem, however, is that the result of much of this regulation is that it prevents insurers from providing consumers and businesses with the products and coverages they need at a reasonable price. Government price controls rely on economic theories that have been broadly discredited both here in the U.S. and around the world over the last 50 years. Not surprisingly, insurance pricing often becomes politicized, and the actuarial role of insurance, to accurately price a particular risk, is destroyed. Insurance availability is reduced as companies unable to make a profit because of artificially low prices are driven out of heavily regulated states and lines of business.

Critics of regulatory reform believe the government should be the dominant player. In contrast, a market-based system would make the public the central focus, and allow prices and products to be driven by the law of supply and demand. As an independent agent, that's the future I want for my customers. Insurers will be able to provide me with a wider variety of insurance products and coverages at competitive rates that I can offer my customers. Reform will allow the Insurance Department to focus on crucial issues that keep markets stable and healthy, such as regulation of insurers' solvency and market conduct.

Remember that South Carolina drivers experienced the worst of an over-regulated insurance industry during the 1990s. After several years of rapidly rising rates, and with carriers exiting the market, in 1997 the General Assembly substantially deregulated auto insurance rates and underwriting, with dramatic results. Over 90 insurers entered the state within six months of deregulation, nearly doubling the number of insurers writing business, and the average expenditure for auto insurance fell. Prior to auto insurance reform, there were over 750,000 drivers insured by the state's residual auto insurance facility. Now there are just over 300. With the success of deregulation in the auto market, the Department of Insurance, the agent community and insurers are now asking the Legislature to look at doing the same thing for homeowners insurance. Today, if a consumer is not satisfied with his auto insurance policy renewal, he can go into the marketplace and readily obtain many competing quotes -- a competitive, free-market environment. This is not the case for homeowners insurance, especially in Charleston County.

The South Carolina economy is heavily dependent on the insurance marketplace to manage all the risks inherent in our growing and vibrant economy. Because of the virtually infinite variety of risk and the ever-evolving needs and desires of policyholders, the regulatory system under which insurers in this state operate must be modern, flexible and focused. Free-market competition is, and will remain, the best way to increase availability and produce the lowest prices.

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